It`s a QE world

When patients do not respond to a particular type of medicine, or suffer from side effects, doctors usually stop administrating it and decide on a different course of action. But for central bankers, which are medics hired to fix ailing economies things are not that simple. The European Central Bank and the Bank of England initiated today programmes aimed to expand the availability of credit in an attempt to cure the economic sickness with the very thing that caused it: too low interest rates.

Interested in negative yields ?

Yields are meant to repay the providers of capital for the risk of tying up their available liquidities into risky projects. The concept is related to the existence of time preference of money: a 1$ today is worth more than a 1$ tomorrow, because lending it entails lost consumption and investment opportunities and because that dollar is subject to inflation. Therefore the only theoretical way in which an interest would be zero, is if the perceived risk of the issuing entity is zero. If this is mesmerizing, than how would one explain the negative nominal yields on Swiss bonds ?

The Greek odyssey

Just like the legendary Greek warrior Achilles, at one point Greece seemed invulnerable: the country reported above the European average real GDP growth rates, relatively low budget deficits and stellar growth prospects. The figures ultimately proved deceitful: the budget deficit was adjusted to 12.5% of GDP in October 2009, in a time when the public debt was "only" 90% of GDP. It all went downhill from there.With credit spreads increasing, investors shunned Greek debt, prompting European banks to use cheap ECB credits to purchase more and more Greek bonds.